2021 WL 1047052

NOTICE: THIS OPINION HAS NOT BEEN RELEASED FOR PUBLICATION IN THE PERMANENT LAW REPORTS. UNTIL RELEASED, IT IS SUBJECT TO REVISION OR WITHDRAWAL.
Court of Appeals of Texas, Tyler.
DAVID L. ROBERTS D/B/A DAVID ROBERTS TRUCKING, APPELLANT
v.
JAY FULLER ENTERPRISES, LLC D/B/A FULLER ENVIRONMENTAL, APPELLEE
NO. 12-20-00134-CV
|
Opinion delivered March 18, 2021
APPEAL FROM THE 392ND JUDICIAL DISTRICT COURT HENDERSON COUNTY, TEXAS
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.

MEMORANDUM OPINION
BRIAN HOYLE Justice
David L. Roberts d/b/a David Roberts Trucking (Roberts) filed this restricted appeal of the trial court’s order granting a no-answer default judgment in favor of Jay Fuller Enterprises, LLC d/b/a Fuller Environmental. Roberts raises five issues for our consideration. We modify and affirm as modified.

BACKGROUND
On October 3, 2019, Fuller filed the instant suit against Roberts in the 392nd District Court of Henderson County, Texas. To explain the context of the suit, Fuller alleged as follows in his petition:
On or about February 11, 2018, Fuller Environmental was dispatched to the scene of a motor vehicle accident involving Defendant’s semi-tractor trailer and two cars, located at the intersection of Highway 175 and County Road 4515 in Athens, Texas. The tractor-trailer was driven by David L. Roberts and was owned and operated by Defendant David L. Roberts d/b/a David Roberts Trucking. Because of Defendant’s negligence, massive damage was caused to Defendant’s vehicle proximately causing a major spill of hazardous materials and pollutants which were discharged from the various parts of Defendant’s vehicle which were designed to contain such pollutants and hazardous materials during the normal operations of the vehicle. The discharge and release of the pollutants were the direct result of damage incurred by the reason of negligence of Defendant.
As a result of damage to Defendant’s vehicle, Plaintiff was requested by Defendant and a Texas Peace Officer to remove the hazardous material and pollutants from the highway at the scene of the crash.
In accordance with the laws of the State of Texas, Defendant is liable to pay for the services rendered by Plaintiff to remove from the crash scene hazardous materials and pollutants.
Alternatively, Plaintiff sues for the value of his services provided to Defendant. Defendant has failed and refused to pay the reasonable and necessary costs of the cleanup.
A citation was issued for Roberts on October 4. On October 9, Roberts was personally served with the citation and a copy of Fuller’s original petition and requests for disclosure. The return of service was filed on October 17. Roberts failed to timely answer the suit.1

On January 21, 2020, Fuller submitted (1) a proposed final judgment, (2) affidavits establishing his damages, and (3) attorney’s fees and a certificate of last known address for Roberts. On January 28, the trial court entered a final judgment against Roberts, awarding Fuller $127,237.82 in actual damages, $3,794.06 in attorney’s fees, $12,723.78 in prejudgment interest, court costs, and post judgment interest. On April 23, the trial court issued a writ of execution and an abstract of judgment. In June, Roberts filed this restricted appeal.

RESTRICTED APPEAL
Roberts alleges four grounds for setting aside the default judgment and granting a new trial: (1) Fuller’s petition failed to plead a cause of action; (2) there is a fatal variance between Fuller’s pleadings and the proof; (3) the trial court failed to conduct a hearing on Fuller’s claim for unliquidated damages; and (4) the damage award is not supported by legally and factually sufficient evidence. In his fifth issue, Roberts argues that the judgment contains an incorrect prejudgment interest calculation.

Standard of Review
A restricted appeal is a procedural device available to a party who did not participate, either in person or through counsel, in a proceeding that resulted in a judgment against the party. See TEX. R. APP. P. 30. It is a direct attack on a judgment. Roventini v. Ocular Scis., Inc., 111 S.W.3d 719, 721 (Tex. App.—Houston [1st Dist.] 2003, no pet.). The elements necessary to prevail on a restricted appeal are that the appellant: (1) filed notice of the restricted appeal within six months after the judgment was signed; (2) was a party to the underlying lawsuit; (3) did not participate in the hearing that resulted in the judgment he complains of, nor timely file any post judgment motions or requests for findings of fact and conclusions of law; and (4) is able to demonstrate error is “apparent on the face of the record.” Ins. Co. of State of Pennsylvania v. Lejeune, 297 S.W.3d 254, 255 (Tex. 2009); Alexander v. Lynda’s Boutique, 134 S.W.3d 845, 848 (Tex. 2004); see also TEX. R. APP. P. 26.1(c), 30. Only the fourth element—error “apparent on the face of the record”—is in question here.

Although review by restricted appeal affords review of the entire case and thus permits the same scope of review as an ordinary appeal, the face of the record must reveal the claimed error. Roventini, 111 S.W.3d at 721 (citing Norman Commc’ns, Inc. v. Tex. Eastman Co., 955 S.W.2d 269, 270 (Tex. 1997) (decided under predecessor writ-of-error practice)). The face of the record in a restricted appeal consists of the papers on file with the court when it rendered judgment. Barker CATV Const., Inc. v. Ampro, Inc., 989 S.W.2d 789, 794 (Tex. App.—Houston [1st Dist.] 1999, no pet.) (on motion for rehearing) (citing General Elec. Co. v. Falcon Ridge Apartments Joint Venture, 811 S.W.2d 942, 944 (Tex. 1991) (decided under writ-of-error practice)). Accordingly, we may not consider, as part of the record, evidence or documents that were not before the trial court when it rendered judgment. Barker CATV Constr., 989 S.W.2d at 794–95; see also General Elec. Co., 811 S.W.2d at 944. Error generally may not be inferred from silence in the record; thus, absent affirmative proof of error, a restricted appeal fails. See Alexander, 134 S.W.3d at 849–50 (holding silence in the record on restricted appeal about whether notice was provided in hearing to dismiss for want of prosecution amounts to absence of proof of error).

Sufficiency of Fuller’s Pleadings
In his first issue, Roberts argues that Fuller did not plead a cognizable cause of action in his petition. A default judgment is properly granted if: (1) the plaintiff files a petition that states a cause of action; (2) the petition invokes the trial court’s jurisdiction; (3) the petition gives fair notice to the defendant of the claim asserted; and (4) the petition does not disclose any invalidity of the claim on its face. See Paramount Pipe & Supply Co. v. Muhr, 749 S.W.2d 491, 494 (Tex. 1988).

In an appeal from a default judgment, an appellate court does not conduct a review of the sufficiency of the evidence to support a defendant’s liability. Hankston v. Equable Ascent Fin., 382 S.W.3d 631, 633 (Tex. App.—Beaumont 2012, no pet.) (citing Texaco, Inc. v. Phan, 137 S.W.3d 763, 770 (Tex. App.—Houston [1st Dist.] 2004, no pet.)). But a default judgment must be supported by a petition that states a cause of action against the defendant. Fairdale Ltd. v. Sellers, 651 S.W.2d 725 (Tex. 1982). Texas follows a “fair notice” standard for pleading, which looks to whether the opposing party can ascertain from the pleading the nature and basic issues of the controversy and what testimony will be relevant. Horizon/CMS Healthcare Corp. v. Auld, 34 S.W.3d 887, 896 (Tex. 2000); see also TEX. R. CIV. P. 47(a) (a pleading “shall contain …a short statement of the cause of action sufficient to give fair notice of the claim involved”). The fair notice pleading standard serves to provide the opposing party information adequate for him to prepare a defense, but also relieves the pleader of the burden of pleading evidentiary matters with meticulous particularity. Elite Door & Trim, Inc. v. Tapia, 355 S.W.3d 757, 766 (Tex. App.—Dallas 2011, no pet.); Bowen v. Robinson, 227 S.W.3d 86, 91 (Tex. App.–– Houston [1st Dist.] 2006, pet. denied). In determining whether a pleading is adequate, we examine whether an opposing attorney of reasonable competence, on review of the pleadings, can ascertain the nature and the basic issues of the controversy. Tapia, 355 S.W.3d at 766; Bowen, 227 S.W.3d at 91. When, as here, no special exceptions are filed, we construe pleadings liberally in favor of the pleader. Auld, 34 S.W.3d at 897.

A petition is sufficient if a cause of action reasonably may be inferred from what is stated in the petition, even if an element of the action is not specifically alleged. Westcliffe, Inc. v. Bear Creek Const., Ltd., 105 S.W.3d 286, 292 (Tex. App.––Dallas 2003, no pet.); see also TEX. R. CIV. P. 45(b) (“That an allegation be evidentiary or be of legal conclusion shall not be grounds for objection when fair notice to the opponent is given by the allegations as a whole.”). “Mere formalities, minor defects, and technical insufficiencies will not invalidate a default judgment where the petition states a cause of action and gives ‘fair notice’ to the opposing party of the relief sought.” Stoner v. Thompson, 578 S.W.2d 679, 683 (Tex. 1979).

Roberts argues that Fuller’s petition does not allege a cause of action and contains only “vague and incomplete allegations.” Specifically, Roberts argues that Fuller failed to plead that (1) Roberts owed Fuller a duty or that he breached any duty; (2) the parties entered into an express contract; (3) Fuller breached a term of a contract; (4) Fuller performed services within the scope of a contract; and (5) Fuller fully performed under a contract.

In order to plead a cause of action for breach of contract, a party must allege: (1) a contractual relationship between the parties; (2) the substance of the contract that supports the pleader’s right to recover; and (2) a breach of the contract by the defendant. See, e.g., Gutierrez v. Portfolio Recovery Assocs., LLC, No. 03-13-00311-CV, 2015 WL 869178, at *3 (Tex. App.—Austin Feb. 26, 2015, pet. denied) (mem. op.); Hur v. City of Mesquite, 893 S.W.2d 227, 233 (Tex. App.—Amarillo 1995, writ denied); Gonzalez v. City of Harlingen, 814 S.W.2d 109, 112 (Tex. App.—Corpus Christi 1991, writ denied). Roberts cites Sellers to support his argument that Fuller failed to plead a cause of action for breach of contract. 651 S.W.2d at 725. In Sellers, the plaintiff sued the defendant and alleged in her petition that the kitchen cabinets installed in her townhome were defective. Id. The Texas Supreme Court reversed the trial court’s order granting a default judgment against the defendant because the plaintiff’s petition failed to allege a valid cause of action. Id. at 726. The court reasoned that the plaintiff failed to allege that the defendant (1) was a party to the contract, (2) built the home, (3) installed the cabinets, (4) was responsible for the defects, or (5) warranted the cabinets. Id.

We conclude that Sellers is distinguishable from this case because Fuller identified Roberts as the party who requested Fuller clean up the hazardous materials. Moreover, construing the pleadings liberally, we conclude that Fuller’s petition sufficiently pleads a cause of action for breach of contract against Roberts. The petition alleges that Roberts requested that Fuller clean up the hazardous materials expelled from Roberts’ truck during the collision. Roberts agreed to remove the hazardous materials and performed the cleanup. Further, the petition alleges that Fuller breached the contract by failing to pay Roberts for his services. These allegations are sufficient to allow Roberts to “ascertain the basic nature and the basic issues” of Fuller’s breach of contract claim. Tapia, 355 S.W.3d at 766; Bowen, 227 S.W.3d at 91. Thus, we conclude that Fuller’s petition sufficiently pleaded a breach of contract claim against Roberts. See, e.g., Gutierrez, 2015 WL 869178, at *3; Hur, 893 S.W.2d at 233; Gonzalez, 814 S.W.2d at 112.

We overrule Roberts’ first issue.

Variance
In Roberts’ second issue, he argues that there is a fatal variance between Fuller’s pleadings and the affidavit he made and attached to the proposed default judgment. He contends that Fuller’s affidavit attempts to prove a suit on a sworn account and this variance precludes recovery upon any contract theory. Fuller cites Caruso v. Krieger for this contention. 698 S.W.2d 760 (Tex. App.—Austin 1985, no writ). In Caruso, the court held that the default judgment was not supported by the pleadings because the plaintiff’s petition sought specific performance but the default judgment awarded monetary damages. Id. at 762. We fail to see how the Caruso holding supports Roberts’ argument. Moreover, a suit on a sworn account is not an independent cause of action, but rather a procedural rule of proof for certain types of contractual claims. See TEX. R. CIV. P. 185; Rizk v. Fin. Guardian Ins. Agency, Inc., 584 S.W.2d 860, 862 (Tex. 1979).

Roberts further argues that Fuller’s affidavit precludes recovery for quantum meruit. His argument is predicated on the contention that Fuller’s petition failed to sufficiently state a cause of action for breach of contract. Because we concluded that Fuller’s petition established a claim for breach of contract, we reject this contention.

We overrule Roberts’ second issue.

Failure to Conduct Separate Hearing on Unliquidated Damages
In his third issue, Roberts argues that the trial court’s failure to conduct a separate hearing on Fuller’s claim for unliquidated damages violates Texas Rule of Civil Procedure 243 and requires reversal. See TEX. R. CIV. P. 243 (“If the cause of action is unliquidated or be not proved by an instrument in writing, the court shall hear evidence as to damages and shall render judgment therefor, unless the defendant shall demand and be entitled to a trial by jury in which case the judgment by default shall be noted, a writ of inquiry awarded, and the cause entered on the jury docket.”).

As previously discussed, Fuller submitted affidavits detailing his damages and attorney’s fees with his proposed default judgment. The trial court did not conduct a formal in court hearing, but rather entered judgment after considering the pleadings and the affidavits. Roberts argues that “[f]urnishing the court with an affidavit post-default cannot dispense with [the] requirement [that the court hear evidence].” Roberts goes on to argue that affidavits “can be probative of unliquidated damages…[b]ut only when offered and received as proof without objection at the trial of unliquidated damages.” Roberts cites Tex. Commerce Bank, Nat’l Ass’n v. New to support his argument. 3 S.W.3d 515, 517 (Tex. 1999). In New, the plaintiff obtained a default judgment against the defendant and presented three affidavits to support his damages at the default judgment hearing; no oral testimony was heard. Id. at 515. The court of appeals held that the affidavits, constituting hearsay, did not satisfy Rule 243’s requirement that the trial court “hear evidence.” Id. at 516; see also TEX. R. CIV. P. 243. The court of appeals reasoned that Texas Rule of Evidence 802 prohibited the use of affidavits to prove unliquidated damages in the context of a default judgment because Rule 802 anticipates opposing counsel’s and/or an opposing party’s presence at the hearing to object to inadmissible hearsay. Id. at 517; see also TEX. R. EVID. 802 (“Inadmissible hearsay admitted without objection shall not be denied probative value merely because it is hearsay.”). The Supreme Court of Texas disagreed, holding that “[b]ecause unobjected hearsay constitutes probative evidence, it satisfies the requirement of Rule 243 that there be evidence of unliquidated damages.” New, 3 S.W.3d at 517. Roberts acknowledges the New holding but argues “to just attach an affidavit to a proposed judgment violates the requirement of Rule 243, that once a defendant defaults on a claim for unliquidated damages, the trial court must ‘hear evidence.’ ” However, two of our sister courts have considered this argument and rejected it. Krawiec v. Holt, No. 05-17-00307-CV, 2018 WL 2126858, at *2 (Tex. App.—Dallas May 7, 2018, no pet.) (mem. op.); Silverado Truck & Diesel Repair, LLC v. Lawson, No. 05-18-00540-CV, 2019 WL 1467966, at *1 (Tex. App.—Dallas Apr. 3, 2019, no pet.) (mem. op.); Vortek Aviation LLC v. Krachinski, No. 01-18-00165-CV, 2019 WL 3331027, at *8 (Tex. App.—Houston [1st Dist.] July 25, 2019, no pet.) (mem. op.).

In Lawson, the plaintiff sued the defendant for unliquidated damages based on claims for violations of the Texas Deceptive Trade Practices Act, negligence, breach of contract, fraud, and conversion. 2019 WL 1467966, at *1. The plaintiff moved for a default judgment and attached affidavits to his proposed final judgment which supported the damages amount set forth in the proposed judgment. Id. at *3. The trial court signed a final judgment awarding the plaintiff damages in the amount set forth in the affidavit. Id. On appeal, the defendant argued that the trial court erred by awarding unliquidated damages to the plaintiff without conducting a hearing. Id. at *4. The court rejected the argument and held that, for an unliquidated claim where liability is established, evidence of the total amount due is sufficient to support an award of damages and the evidence may be supplied by affidavits. Id. We agree with our sister court’s interpretation of Rule 243’s requirements and hold that the trial court did not err by failing to hold a separate damages hearing.

We overrule Roberts’ third issue.

Legal and Factual Sufficiency of the Damages Award
In his fourth issue, Roberts argues that the evidence presented by Fuller to support the trial court’s damages award is legally and factually insufficient.

The legal and factual sufficiency of the evidence to support an award of unliquidated damages may be challenged on appeal from a no-answer default judgment. Argyle Mech., Inc. v. Unigus Steel, Inc., 156 S.W.3d 685, 687 (Tex. App.––Dallas 2005, no pet.). Where a specific attack is made upon the sufficiency of the evidence to support the trial court’s determination of damages in a default judgment, the appellate court must review the evidence produced. Dawson v. Briggs, 107 S.W.3d 739, 748 (Tex. App.––Houston [1st Dist.] 2003, no pet.). We will sustain a legal sufficiency or “no evidence” challenge if the record shows one of the following: (1) a complete absence of a vital fact; (2) rules of law or evidence bar the court from giving weight to the only evidence offered to prove a vital fact; (3) the evidence offered to prove a vital fact is no more than a scintilla; or (4) the evidence establishes conclusively the opposite of the vital fact. City of Keller v. Wilson, 168 S.W.3d 802, 810 (Tex. 2005). We consider the evidence in the light most favorable to the verdict and indulge every reasonable inference that supports it. Id. at 821– 22. The evidence is legally sufficient if it would enable reasonable and fair-minded people to reach the verdict under review. Id. at 827. We credit favorable evidence if reasonable jurors could, and disregard contrary evidence unless reasonable jurors could not. See id. In reviewing a factual sufficiency challenge, we examine all the evidence and reverse only if the finding is against the great weight and preponderance of the evidence. Whitaker v. Rose, 218 S.W.3d 216, 221 (Tex. App.—Houston [14th Dist.] 2007, no pet.).

As part of this issue, Roberts argues that the trial court’s failure to conduct an evidentiary hearing and formally receive Fuller’s affidavits is fatal because “there is effectively no evidence of damages.” Having already concluded that the trial court did not err in failing to conduct an evidentiary hearing, we will not address this argument. See TEX. R. APP. P. 47.1. Roberts also argues that the evidence is legally and factually insufficient because Fuller referenced an agreement between himself and Roberts which precludes any recovery in quantum meruit. Having already concluded that Fuller adequately pleaded a breach of contract claim, we will not address this argument. See id.

Roberts further argues that the evidence is legally and factually insufficient because Fuller’s affidavit, which explained that his company charged $127,237.82 for the cleanup, is conclusory by failing to detail what materials and equipment were used, what tasks were completed, how much time each task required, or when the amount was due. Roberts goes on to argue that the invoice Fuller attached is facially defective because the invoice is dated February 12, 2018 and purports to be due thirty days later, yet the invoice documents services and materials allegedly provided after the invoice’s date and in some instances, a week after the due date on the invoice. Roberts further argues that Fuller’s report to the Texas Commission on Environmental Quality (TCEQ), which Fuller submitted along with his affidavit and invoice “mentions no work at all being performed on several dates for which the invoice has extensive entries and charges.”

We have reviewed Fuller’s affidavit, attached invoice, attached demand letter, and TCEQ report and we disagree. Fuller explains in his affidavit that he owns a business that engages in “hazmat” work. He explains that hazmat refers to both state and federal law which require environmental protection necessary after hazardous materials are spilled into the environment. Fuller states that Roberts’ collision resulted in the spill of hazardous materials which required remedial hazmat work. Fuller further states that he is certified by the appropriate agencies to perform hazmat work, details his background in the industry, and asserts his familiarity with the business, materials, and equipment involved. Additionally, Fuller states that his charges are normal based on his personal knowledge of what other hazmat contractors, similar to his company in the area, charge for similar work and his knowledge and experience of industry standards based on his twenty years of experience. Fuller states that the charges for his work total $127,237.82. Attached to the affidavit is Fuller’s invoice. The invoice lists the dates and times work was performed, lists the activity performed, identifies the types and quantities of materials used, lists the price for the activity performed/materials used, and states the total amount due for each entry. The invoice shows Fuller’s company performed work for Roberts on February 11-12, 16, 18-21, 23, and 26 and March 1, 12-15, and 23 of 2018. Fuller also submitted his TCEQ report which provides a detailed narrative summary of the cleanup. Because Fuller’s affidavit, invoice, demand letter, and TCEQ report detail the factual bases for his damages, we disagree with Roberts’ contention that the three documents are “conclusory.” See Padilla v. Metro. Transit Auth. of Harris Cty., 497 S.W.3d 78, 86 (Tex. App.—Houston [14th Dist.] 2016, no pet.) (to avoid being conclusory an affidavit must contain factual bases for its conclusions).

We are equally unpersuaded by Roberts’ argument that the evidence is insufficient because Fuller’s affidavit did not establish when payment was due. Fuller cites Collins Fin. Servs., Inc. v. Guerrero, wherein the court held that an affidavit in a default-judgment case was insufficient because it merely recited an outstanding balance and did not state when the balance was payable. No. 05-07-01732-CV, 2009 WL 3032479, at *2 (Tex. App.—Dallas Sept. 24, 2009, pet. denied) (mem. op.). In Guerrero, the plaintiff sued the defendant for breach of a retail installment agreement, moved for a default judgment, and attempted to support its damages by attaching an account statement indicating a past due balance and a sworn affidavit from the plaintiff’s unidentified “designated agent” stating
[t]hat the foregoing and annexed account, claim, and cause of action … against [Guerrero] … in the sum of $6,357.44 Dollars [sic], together with interest at the rate of 6% per annum per the terms and conditions, which amount is within the knowledge of affiant just and true, and that it is due and that all just and lawful offsets, payments and credits have been allowed.
Id. at *1. The court acknowledged that, for an unliquidated claim where liability is established, evidence of the total amount due is sufficient to support an award of damages and the evidence may be supplied by affidavits. Id. at *2. The court held that the plaintiff could not rely on his agent’s affidavit because the agent/affiant did not positively and unqualifiedly represent the facts as disclosed in the affidavit to be true and within the affiant’s personal knowledge, thus the source of the affiant’s knowledge was not stated and legally insufficient to establish the plaintiff’s damages. Id. While the plaintiff was able to rely on deemed admissions to establish the principal amount owing and the contractual interest rate, no evidence in the record established the date of the defendant’s default. Id. Thus, the court held the evidence insufficient because the plaintiff did not establish the date of the defendant’s default rendering it impossible to calculate the interest due on the outstanding balance. Id., 2009 WL 3032479, at *2. In this case, Fuller sent a letter to Roberts on April 17, 2018, stating “[p]lease be advised this is our first attempt to collect the invoice amount from you in the amount of $127,937.82.” Fuller attached this demand letter, along with his affidavit, invoice, and TCEQ report, to his proposed default judgment. Thus, we conclude that Guerrero is inapposite in this case.

Roberts has failed to provide this Court with authority, nor are we aware of any, that supports his argument that the date discrepancy on the invoice renders the evidence insufficient. Moreover, we disagree that the date of the invoice or the minimal inconsistencies in the dates of service reflected on the invoice and the TCEQ report render the evidence insufficient. Roberts’ assertion that the TCEQ report mentions no work at all being performed on several dates for which the invoice has extensive entries and charges is misleading. The TCEQ report is written in narrative form and is best described as a summary of the cleanup process. While the report does not detail every date that Fuller performed services, its overall description of the project is consistent with the invoice. We therefore conclude that Fuller’s affidavit, attached invoice, demand letter, and report provide legally and factually sufficient evidence to support the trial court’s damages award. See City of Keller, 168 S.W.3d at 810; see also Whitaker, 218 S.W.3d at 221.

We overrule Roberts’ fourth issue.

Prejudgment Interest
In Roberts’ fifth issue, he argues that the judgment contains an incorrect calculation of prejudgment interest.2 Fuller concedes this point. Roberts and Fuller agree that prejudgment interest at the applicable five percent rate on the $127,237.82 damage award amounts to $8,192.02. Accordingly, we sustain Roberts’ fifth issue and modify the judgment to reflect the correct pre-judgment interest amount.

DISPOSITION
Having overruled Roberts’ first four issues and sustained his fifth issue, we modify the judgment to reflect prejudgment interest in the amount of $8,192.02. We affirm the trial court’s judgment as modified.

JUDGMENT
Appeal from the 392nd District Court of Henderson County, Texas (Tr.Ct.No. CV19-0591-392)

THIS CAUSE came to be heard on the oral arguments, appellate record and the brief filed herein, and the same being considered, because it is the opinion of this court that the judgment of the court below should be modified and as modified, affirmed.

It is therefore ORDERED, ADJUDGED and DECREED that the judgment of the court below be modified to reflect prejudgment interest in the amount of $8,192.02; in all other respects the judgment of the trial court is affirmed; all costs are adjudged against Appellant, DAVID L. ROBERTS D/B/A DAVID ROBERTS TRUCKING, and that this decision be certified to the court below for observance.

Brian Hoyle, Justice.

Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.

All Citations
— S.W.3d —-, 2021 WL 1047052

Footnotes

1
See TEX. R. CIV. P. 99.

2
As part of his fifth issue, Roberts argues that the prejudgment interest should only be computed on $34,711.80, the charges reflected on Fuller’s invoice for February 11 and 12, because the invoice is dated February 12. Having already concluded that the invoice date does not render the evidence insufficient to support the damages award, we will not address this argument. See TEX. R. APP. P. 47.1.

2021 WL 1110397

United States District Court, W.D. New York.
JAMES J. GIARLA, AMBER L. GIARLA, Plaintiffs,
v.
THE COCA-COLA COMPANY, COCA-COLA REFRESHMENTS USA, INC., Defendants.
17-CV-359S
|
03/23/2021

WILLIAM M. SKRETNY, United States District Judge

DECISION AND ORDER

I. Introduction
*1 This is a removed diversity personal injury action for injuries suffered by Plaintiff James Giarla while driving a tractor trailer on the Queen Elizabeth Way in Ontario, Canada. Plaintiffs are New York residents (Docket No. 1, Ex. B, Compl. ¶ 1; Docket No. 1, Notice of Removal ¶10). Defendants are corporations incorporated in Delaware and do business in Georgia (Docket No. 1, Ex. B, Compl. ¶¶ 2-3, 20-21; Docket No. 1, Notice of Removal ¶10).

James Giarla was hit by a truck owned by Coca-Cola Refreshments Canada. Plaintiffs now allege that Defendants, the Coca-Cola Company and Coca-Cola Refreshments USA, Inc., are responsible for Coca-Cola Refreshments Canada in this action.

For the reasons stated herein, Defendants’ Motion for Judgment to Dismiss the Complaint (Docket No. 16) is granted. Plaintiffs argue that they should be granted leave to replead (Docket No. 19, Pls. Memo. at 18). Leave to amend is granted; Plaintiffs shall file and serve their Motion for Leave to Amend (with the proposed Amended Complaint) within fourteen (14) days of entry of this Order.

II. Background

A. Defendant Coca-Cola’s Corporate Organization
Pertinent to this case, Plaintiffs allege the corporate affiliation of Coca-Cola Company (“Coke”) and the history of Defendant Coca-Cola Refreshments USA (“CCR”), the wholly owned subsidiary of Coke (Docket No. 1, Ex. B, Compl. ¶¶ 19-21). CCR is Coke’s largest bottler (id. ¶¶ 16-18). Coke acquired Coca-Cola Enterprises and Coca-Cola Enterprises was renamed Coca-Cola Refreshments, Inc. (id. ¶¶ 16, 18).

Plaintiffs allege the Coca-Cola Refreshments Canada (“CCR-Canada”) was a wholly owned subsidiary of CCR as of 2015 (id. ¶¶ 27-28, 37, 64-68). They claim that there were not separate “operating segments” for the United States and Canada but a unified operation under the “North America segment” caption (id. ¶ 71). They argue that Coke did not distinguish between CCR and CCR-Canada, allegedly treating them as one operating segment for North America (id. ¶ 73). As an example of the continental perspective, Plaintiffs point to the January 2016 transfer by Coke of bottling and related supply chain operations from CCR and CCR-Canada to a Bottling Investment segment (id. ¶ 82), although this change post-dates James Giarla’s accident.

Plaintiffs conclude that Coke and CCR “should be held accountable to a New York State resident and not be allowed to escape that responsibility by asserting a corporate separation that exists in name only” (id. ¶ 89).

B. Queen Elizabeth Way Collision, February 25, 2015
James Giarla was a tractor trailer driver. On February 25, 2015, he was driving from Michigan back to his employer in Blaisdell, New York, passing through Ontario, Canada, on the Queen Elizabeth Way (Docket No. 1, Ex. B, Compl. ¶¶ 33-35). Plaintiffs allege that driver Francesco Rappazzo, employed by CCR-Canada, drove a CCR-Canada truck, and collided into James Giarla’s tractor trailer on the Queen Elizabeth Way in Grimsby, Ontario (id. ¶ 38). Plaintiffs contend that CCR-Canada is a wholly owned subsidiary of Coke (id. ¶ 37; see Docket No. 15, Am. Ans. ¶ 7 (admitting allegation that CCR-Canada owned the truck and it was operated by Rappazzo in the course of his employment with CCR-Canada)).

C. Plaintiffs’ New York State Complaint (Docket No. 1, Ex. B)
*2 Plaintiffs sued in New York State Supreme Court, Niagara County (Docket No. 1, Ex. B, Compl.). Plaintiffs did not set forth a formal First Cause of Action, but they allege a claim for negligence for the injuries to James Giarla (see id. ¶¶ 30-89) and a Second Cause of Action asserting a consortium claim for Plaintiff Amber Giarla (id. ¶¶ 90-91).

For their state action, Plaintiffs alleged New York State courts jurisdiction over this matter (see id. ¶¶ 46-63). Plaintiffs claim that they had only minimal contacts with the Province of Ontario because it was the site of the accident, stating that James Giarla drove through the Province but otherwise had his medical treatments exclusively in New York (id. ¶¶ 46-54). James Giarla received workers’ compensation in New York and no income or other benefits in Ontario (id. ¶¶ 51, 53, 52).

They next argue that Defendants (Coke, CCR, and non-party CCR-Canada) have significant contacts with New York (id. ¶¶ 55-63). Plaintiffs claim that Coke and CCR has common ownership over Coke’s wholly own subsidiary, CCR-Canada, and minimal contacts in Canada (id. ¶¶ 64-70). They contend that Coke considered the United States and Canadian operations the “North American” operations (id. ¶¶ 71, 73, 74). Plaintiffs, however, did not sue CCR-Canada.

Plaintiffs next assert prejudice to them if Ontario law applies in this case, concluding that New York law should apply (id. ¶¶ 83-89).

D. Answer and Proceedings
Defendants separately answered the Complaint (id., Exs. C (Ans. of Coca-Cola Company), D (Ans. of Coca-Cola Refreshments USA)). They separately served demands pursuant to N.Y. CPLR 3017(c) for Plaintiffs to allege the amount of their damages (id. Exs. F, G). Plaintiffs responded on April 21, 2017, alleging damages totaling at least $2 million, but claiming that James Giarla then still was undergoing medical treatment (id., Ex. H) that might increase their damages.

Defendants then removed this action on April 27, 2017 (Docket No. 1). They then jointly amended their Answer (Docket No. 15).
E. Defense Motion for Judgment on Pleadings Dismissing the Complaint (Docket No. 16)

On September 19, 2017, Defendants filed their present Motion1 for Judgment on the Pleadings to Dismiss the Complaint pursuant to Federal Rule of Civil Procedure 12(c) (Docket No. 16).

Responses to this motion, as extended (see Docket Nos. 18, 17), were due by October 9, 2017, and reply was due by October 16, 2017 (Docket No. 20).

III. Discussion

A. Applicable Standards
1. Motion for Judgment on Pleadings to Dismiss
Under Rule 12(c) of the Federal Rules of Civil Procedure, after pleadings are closed a party “may move for judgment on the pleadings,” Fed. R. Civ. P. 12(c). Since this rule calls for a summary proceeding that may deprive the opponent of the opportunity to a full and fair hearing on the merits of their claims, the movants must show a clear right to judgment on the pleadings, that there are no material issues of fact to be resolved, and entitlement to judgment as a matter of law, 5C Charles A. Wright, Arthur R. Miller, Federal Practice and Procedure § 1368, at 223 (Civil 3d ed. 2004). “A motion for judgment on the pleadings…theoretically is directed towards a determination of the substantive merits of the controversy; thus federal courts are unwilling to grant a judgment under Rule 12(c) unless it is clear that the merits of the controversy can be fairly and fully decided in this summary manner,” id., § 1369, at 259.

*3 Rule 12(c) “should be read in conjunction with several other federal rules authorizing pretrial motions, especially the various Rule 12(b) motions to dismiss,” id. at 258. Rule 12(b)(6), in turn, provides that the Court cannot dismiss a Complaint unless it appears “beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). As the Supreme Court held in Bell Atlantic Corp. v. Twombly, 550 U.S. 554, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), a Complaint must be dismissed if it does not plead “enough facts to state a claim to relief that is plausible on its face,” id. at 570 (rejecting longstanding precedent of Conley, supra, 355 U.S. at 45-46); Hicks v. Association of Am. Med. Colleges, No. 07-00123, 2007 U.S. Dist. LEXIS 39163, at *4 (D.D.C. May 31, 2007).

To survive a motion to dismiss, the factual allegations in the Complaint “must be enough to raise a right to relief above the speculative level,” Twombly, supra, 550 U.S. at 555; Hicks, supra, 2007 U.S. Dist. LEXIS 39163, at *5. As reaffirmed by the Court in Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009),
“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ [Twombly, supra, 550 U.S.] at 570….A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id., at 556….The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully. Ibid. Where a complaint pleads facts that are ‘merely consistent with’ a defendant’s liability, it ‘stops short of the line between possibility and plausibility of “entitlement to relief.” ’ Id., at 557…(brackets omitted).”
Iqbal, supra, 556 U.S. at 678 (citations omitted).

A Rule 12(c) motion is addressed to the face of the pleading, “otherwise, a summary judgment motion or trial is necessary,” 5C Federal Practice and Procedure, supra, § 1368, at 248, 251. The pleading is deemed to include any document attached to it as an exhibit, Fed. R. Civ. P. 10(c), or any document incorporated in it by reference. Goldman v. Belden, 754 F.2d 1059 (2d Cir. 1985).

In considering such a motion, the Court must accept as true all the well pleaded facts alleged in the Complaint. 5C Federal Practice and Procedure, supra, § 1368, at 227, 230, 237-38; Oneida Indian Nation of N.Y. v. City of Sherrill, N.Y., 337 F.3d 139, 152 (2d Cir. 2003) (court applies same standard for Rule 12(b) and 12(c) dismissals), rev’d on other grounds sub nom. City of Sherrill, N.Y. v. Oneida Indian Nation of N.Y., 544 U.S. 197, 125 S.Ct. 1478, 161 L.Ed.2d 386 (2005); Bloor v. Carro, Spanbock, Londin, Rodman & Fass, 754 F.2d 57 (2d Cir. 1985). However, conclusory allegations that merely state the general legal conclusions necessary to prevail on the merits and are unsupported by factual averments will not be accepted as true. New York State Teamsters Council Health and Hosp. Fund v. Centrus Pharmacy Solutions, 235 F. Supp. 2d 123 (N.D.N.Y. 2002).

2. Choice of Law
As a diversity action, the procedures are governed by federal law and rules, while the substantive law is governed by state law, see Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Ocean Ships, Inc. v. Stiles, 315 F.3d 111, 116 n.4 (2d Cir. 2002). A federal court sitting in diversity (as here) applies the choice of law rules from the state in which it sits, Klaxon v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941), here New York law.

*4 Under New York’s choice of law rules, “the first step in any case presenting a potential choice of law is to determine whether there is an actual conflict between the laws of the jurisdiction involved.” Matter of Allstate Ins. Co., 81 N.Y.2d 219, 223, 597 N.Y.S.2d 904, 905 (1993). This Court need not determine which jurisdiction’s law applies where the relevant issue would turn out the same under the forum’s law or the other cited jurisdiction and no true conflict exists, Elgin Sweeper Co. v. Melson Inc., 884 F. Supp. 641, 648 (N.D.N.Y. 1995); Howard v. Clifton Hydraulic Press Co., 830 F. Supp. 708, 712 (E.D.N.Y. 1993).

Another factor in identifying the proper jurisdiction’s law under New York’s choice of law rules is whether the law regulates conduct or allocates loss, Padula v. Lilarn Properties Corp., 84 N.Y.2d 519, 522, 620 N.Y.S.2d 310, 313 (1994) (Docket No. 19, Pls. Memo. at 12-13). Loss allocation, such as vicarious liability laws, guest statutes, or charitable immunity laws, id., and agency law, see Presbyterian Church of Sudan v. Talsiman Energy, Inc., 453 F. Supp.2d 633, 687-88 (S.D.N.Y. 2006) (plaintiff failed to address choice of law for question of which jurisdiction’s agency law applies), “are those which prohibit, assign, or limit liability after the tort occurs,” Padula, supra, 84 N.Y.2d at 522, 620 N.Y.S.2d at 313. The Neumeier rules (Neumeier v. Kuehner, 31 N.Y.2d 121, 335 N.Y.S.2d 64 (1972)) apply to determine the appropriate substantive law for loss allocation depending upon the domicile of the parties and the interests of the applicable jurisdictions.

Contrast conduct regulation, such as Labor Law §§ 240, 241, as held in Padula, supra, 84 N.Y.2d at 523, 620 N.Y.S.2d at 313, where “conduct-regulating rules have the prophylactic effect of governing conduct to prevent injuries from occurring. ‘If conflicting conduct-regulating laws are at issue, the law of the jurisdiction where the tort occurred will generally apply because that jurisdiction has the greatest interest in regulating behavior within its borders’ (Cooney v. Osgood Mach., 81 N.Y.2d 66, 72, 595 N.Y.S.2d 919, 612 N.E.2d 277 [1993]),” Padula, supra, 84 N.Y.2d at 522, 620 N.Y.S.2d at 313.

In personal injury actions, New York generally applies the law of the jurisdiction in which the injury occurred, see Cooney v. Osgood Machinery, Inc., 81 N.Y.2d 66, 595 N.Y.S.2d 919 (1993); Neumeier, supra, 31 N.Y.2d 121, 335 N.Y.S.2d 64; that would be Ontario and Canadian law here.

Under Neumeier, where the Plaintiffs are residents of one state (here, New York), the Defendants a second state (here, Georgia or Delaware, the state of incorporation), and the accident occurred in a third jurisdiction (the Province of Ontario), for loss allocation matters Neumeier’s third rule applies and the law of the site of the accident generally applies “but not if it can be shown that displacing that normally applicable rule will advance the relevant substantive law purposes without impairing the smooth working of the multistate system or producing great uncertainty for litigants,” Neumeier, supra, 31 N.Y.2d at 128, 335 N.Y.S.2d at 70; In re Air Crash Near Clarence Center, N.Y., 983 F. Supp.2d 249, 253-54 (W.D.N.Y. 2013) (Skretny, C.J.) (see Docket No. 19, Pls. Memo. at 12-13; Docket No. 16, Defs. Memo. at 2, 6).

3. Piercing the Corporate Veil in Ontario and New York
Under New York law “the doctrine of piercing the corporate veil is typically employed by a third party seeking to go behind the corporate existence in order to circumvent the limited liability of the owners and to hold them liable for some underlying corporate obligation,” In Matter of Morris v. New York State Dep’t of Tax. & Fin., 82 N.Y.2d 135, 140-41, 603 N.Y.S.2d 807, 810 (1993) (footnote omitted). “The concept of piercing the corporate veil is a limitation on the accepted principles that a corporation exists independently of its owners, as a separate legal entity, that the owners are normally not liable for the debts of the corporation, and that it is perfectly legal to incorporate for the express purpose of limiting the liability of the corporate owners,” id., 82 N.Y.2d at 140, 603 N.Y.S.2d at 810 (citation omitted).

*5 As Defendants note (Docket No. 16, Defs. Memo. at 4), Plaintiffs as the parties seeking to pierce a corporate veil bear “a ‘heavy burden’ of demonstrating complete domination by the parent and that such domination was the instrument of fraud or otherwise resulted in inequitable consequences,” Christensen v. SBM Indus., Inc., 9 F. App’x 52, 53 (2d Cir. 2001) (summary Order); TNS Holdings, Inc. v. MKI Sec. Corp., 92 N.Y.2d 335, 339, 680 N.Y.S.2d 891, 893 (1998). Evidence only of domination by one corporation of another, even identical shareholders, officers, and directors, does not warrant piercing the second corporation, see Spano v. V&J Nat’l Enterp. LLC, 264 F. Supp.3d 440, 451 (W.D.N.Y. 2017) (Wolford, J.). Additional evidence of fraud, inequity, or misfeasance is required, id. “Indeed, even the fact that corporations have identical controlling stockholders, officers, and directors does not, by itself, warrant disregard of the separate corporate entities,” Bagel Bros Maple v. Ohio Farmers, Inc., 279 B.R. 55, 65 (Bankr. W.D.N.Y. 2002) (Kaplan, Bankr. J.) (quotations and citations omitted).

“The party seeking to pierce the corporate veil must establish that the owners, through their domination, abused the privilege of doing business in the corporate form to perpetrate a wrong or injustice against that party such that a court in equity will intervene,” Morris, supra, 82 N.Y.2d at 142, 603 N.Y.S.2d at 811 (citations omitted).

Here, Plaintiffs are New York State residents, Defendants are Delaware corporations headquartered in Georgia but licensed to do business in New York and the accident occurred in Ontario. The parties dispute whether Ontario (as Defendants urge) or New York (as Plaintiffs argue) law applies. If the standards for piercing the corporate veil are the same in Ontario and New York law, then there is no conflict and either jurisdiction’s law applies.

The parties agree that Ontario and New York law regarding piercing the corporate veil are substantially similar (Docket No. 16, Defs. Memo. at 6; Docket No. 19, Pls. Memo. at 15). Under Ontario law, to pierce a corporate veil, the party needs to allege that the corporation was formed “for an illegal, fraudulent or improper purpose. But it can also be pierced if when incorporated those in control expressly direct a wrongful thing to be done,” Mitchell v. Lewis, 2016 ONCA 903, at *7 (Ont. Ct. App. 2016) (Docket No. 16, Defs. Memo. at 6). Under New York law, piercing the corporate veil requires a fraudulent, wrongful, or unjust act (id. at 4-5), see, e.g., Spano, supra, 264 F. Supp.3d at 451.

Thus, under New York choice of law rules, there is no substantive dispute. For convenience, this Court will cite to New York law regarding piercing the corporate veil.

4. Agency of Subsidiary to Parent
As noted by the United States District Court for the Southern District of New York, “at the motion to dismiss stage, the question ‘is not whether plaintiffs have proved the existence of an agency relationship, merely whether they should have the chance to do so,’ ” In re South African Apartheid Litig., 617 F. Supp.2d 228, 273 (S.D.N.Y. 2009), mandamus denied, 727 F.3d 174 (2d Cir. 2013); In re Parmalat Secs. Litig., 501 F. Supp.2d 560, 588 (S.D.N.Y. 2007) (Docket No. 19, Pls. Memo. at 8).

Under New York law, “a parent company will not be held liable for the torts of its subsidiary unless it can be shown that the parent exercises complete dominion and control over the subsidiary,” (Docket No. 19, Pls. Memo. at 8), holding that the plaintiff failed to establish material issue of fact whether that defendant “so controlled the operations of the subsidiary company that it should be held liable for the negligence of the delivery truck driver,” Montes Serrano v. New York Times Co., 19 A.D.3d 577, 578, 797 N.Y.S.2d 135, 136 (2d Dep’t 2005) (Docket No. 19, Pls. Memo. at 8).

*6 Under Ontario law, a subsidiary is not liable as an alter ego unless the subsidiary is under the complete control of the parent and the subsidiary is “nothing more than a conduit used by the parent to avoid liability,” Gregorio v. Intrans-Corp., 18 O.R.3d 527, ¶ 28 (Ont. Ct. App. 1994) (Docket No. 21, Defs. Reply Memo. at 8).

5. Leave to Amend
Plaintiffs alternatively seek leave to replead if there are deficiencies with the Complaint (Docket No. 19, Pls. Memo. at 18). Under Federal Rule of Civil Procedure 15(a), amendment of pleadings after the time to do so as of right requires either consent of all parties or by leave of the Court. The parties here have not indicated Defendants’ consent to an amendment and Plaintiffs have not submitted a proposed amendment. Motions for leave to amend the Complaint are to be freely given when justice requires. Granting such leave is within the sound discretion of the Court. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962); Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 330, 91 S.Ct. 795, 28 L.Ed.2d 77 (1971). “In the absence of any apparent or declared reason–such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc.–the leave sought should, as the rules require, be ‘freely given.’ ” Foman, supra, 371 U.S. at 182 (quoting Fed. R. Civ. P. 15(a)).

B. Parties’ Contentions
Defendants moved for judgment dismissing the Complaint under Federal Rule of Civil Procedure 12(c). They argue that Plaintiffs have not alleged a fraudulent, wrongful, or unjust act that would allow piercing the corporate veil of CCR-Canada to reach Defendants under either New York or Canadian law (Docket No. 16, Defs. Memo. at 1, 4-6). To Defendants, Plaintiffs’ theory is that CCR-Canada is vicariously liable for the collision by its driver, Rappazzo, and Plaintiffs then impute this vicarious liability to Defendants Coke and CCR by piercing CCR-Canada’s corporate veil (see Docket No. 1, Ex. B, Compl. ¶ 41).

In response, Plaintiffs argue liability due to CCR-Canada’s agency for Coke and CCR (Docket No. 19, Pls. Memo. at 6, 8-9). They contend that the Complaint alleges the piercing of CCR-Canada’s corporate veil to reach Defendants (id. at 10-11). They next argue that New York law (rather than Ontario) applies (id. at 12-16). They cite four Canadian cases on the principal liability for its agent’s actions (Docket No. 19, Pls. Memo. at 16, 17, Exs.) as an alternative argument that, under Canadian law, CCR-Canada was agent for Defendants, as it would be under New York agency law (id. at 16-17).

Alternatively, if this Court requires further specificity for their agency or corporate veil arguments, Plaintiffs seek leave to amend the Complaint (id. at 18).

In reply, Defendants argue that Plaintiffs’ agency argument also is insufficiently pled, that any factual allegations fail to plausibly allege a cause of action (Docket No. 21, Defs. Reply Memo. at 1, 2, 4). As a Motion to Dismiss, they contend that this Court need not accept Plaintiffs’ legal conclusions (id. at 3). Defendants renew their contention that Plaintiffs have not pled piercing the corporate veil of CCR-Canada (id. at 6). Defendants refute the existence of any agency relationship was alleged between Coke, CCR, and CCR-Canada (id. at 3-6). The choice of law need not be resolved for this motion, but Defendants alternatively offer that the applicable jurisdiction’s law is Ontario’s or Canadian law (id. at 1, 6-7).

*7 Defendants did not take a position on possible amendment of the Complaint, although by moving to dismiss under Rule 12(c) implies that they would object to amendment.

C. Piercing CCR-Canada’s Corporate Veil to Reach Defendants

1. Choice of Law
The parties agree (Docket No. 16, Defs. Memo. at 6; Docket No. 19, Pls. Memo. at 15) that Ontario (or Canadian) law and New York law are similar for piercing the corporate veil. Under New York’s choice of law principles, New York substantive law regarding piercing the corporate veil applies.

2. Piercing CCR-Canada’s Corporate Veil under New York Law
Plaintiffs have not named CCR-Canada (or Rappazzo) as a Defendant. Instead, they sue Coke and CCR, arguing that Rappazzo’s vicarious liability from CCR-Canada extends to these Defendants because of their ownership and control of CCR-Canada.

Applying New York piercing the corporate veil law, Plaintiffs fail to allege that CCR-Canada’s incorporation was a product of fraud, misconduct, or was an unjust act to warrant piercing CCR-Canada’s corporate veil. Despite Plaintiffs alleging close corporate affiliation between Defendants and CCR-Canada, even the internal disregard by Coke of the corporate distinctions between its subsidiaries CCR and CCR-Canada, Plaintiffs do not allege this arrangement was the product of fraud or misconduct or results in an unjust act.

Plaintiffs did not meet the standard they cited for piercing the corporate veil, that is showing that CCR-Canada “was dominated as to the transaction attacked and that such domination was the instrument of fraud or otherwise result in wrongful or inequitable consequences” (Docket No. 19, Pls. Memo. at 10, citing TNS Holdings, supra, 92 N.Y.2d at 339, 680 N.Y.S.2d at 893), see Morris, supra, 82 N.Y.2d at 141, 603 N.Y.S.2d at 810. While Plaintiffs assert Defendants’ ownership of CCR-Canada, they fail to meet their heavy burden of demonstrating that this complete domination by Defendants was the instrument of fraud or other wrongdoing or Defendants’ control extended to Rappazzo’s driving CCR-Canada’s truck on the Queen Elizabeth Way. The arguments Plaintiffs raise in support of piercing (id. at 11) is the objection to application of Ontario law (or potentially litigating this case in Ontario) rather than the relationships between the corporate Defendants and CCR-Canada to show that the corporate nature of CCR-Canada should be disregarded. If deemed an unjust act, it only arises from the differences of law between Ontario and New York and not from Defendants’ action. Defendants’ internal disregard of the corporate form of CCR-Canada by allegedly treating it as a “segment” of Coke without more does not establish a basis for this Court to disregard CCR-Canada’s incorporation. Coke and CCR are entitled to establish wholly owned subsidiaries, such as CCR-Canada, to keep Defendants at arm’s length from CCR-Canada’s obligations.

Again, as Plaintiffs point out (id., citing Morris, supra, 82 N.Y.2d 135, 141, 603 N.Y.S.2d at 810), piercing a corporate veil is dependent upon the facts and circumstances alleged. Here, Plaintiff James Giarla was hit by a truck owned by CCR-Canada and driven by one of its employees, Rappazzo. Plaintiffs generally allege that corporate parents CCR and Coke owned and operated CCR-Canada, now arguing that Defendants “completely dominated CCR-Canada in all phases of its operation” (id. at 11). The Complaint, however, alleges the ownership and global operation of Coke (Docket No. 1, Ex. B, Compl. ¶¶ 16-19, 25-26, 27-29, 64-81), including CCR operating a fleet of trucks and other vehicles for distribution and delivery of beverage products (id. ¶ 80). They fail to allege fraud, misconduct that alleges that CCR-Canada’s incorporation was in effect a sham and the real operators are Defendants.

*8 Defendants’ motion (Docket No. 16) for judgment on the pleadings under Rule 12(c) dismissing Plaintiffs’ allegations of piercing the corporate veil of CCR-Canada is granted.

D. Agency Liability
Plaintiffs alternatively argues that principles of agency extend liability to Defendants for the actions of CCR-Canada (Docket No. 19, Pls. Memo. at 7-9), also contending under Canadian law that the principal is liable for torts committed within the authority of its agent (id. at 16), Keddie v. Canada Life Assur. Co., 1999 BCCA 541 (B.C. Ct. App. 1999) (id. at 16, Ex. A).

Defendants reply that, under applicable Canadian law, a subsidiary is an agent of the parent company only if the subsidiary is the “alter ego” of the parent (Docket No. 21, Defs. Reply Memo. at 8). Defendants distinguish corporate agency from employer-employee agency Plaintiffs implicitly relied upon (Docket No. 21, Defs. Reply Memo. at 8).

1. Choice of Law
Plaintiffs cite to Canadian law for its similarity to New York law that generally a principal is responsible for the acts of its agent (Docket No. 19, Pls. Memo. at 16-17, Ex. A). Two of the four Canadian cases cited (and opinions reproduced by Plaintiffs) are from the British Columbia Court of Appeal, Thiessen v. Clarica Life Ins. Co., 2002 BCCA 501 (B.C. Ct. App. 2002); Keddie, supra, 1999 BCCA 541 (B.C. Ct. App. 1999). Although citing British Columbia cases, Plaintiffs fail to explain whether British Columbia law of agency would be the same as in Ontario to make these precedents relevant in this case. Keddie and Thiessen are further distinguished because they involved allegations that an insurance broker was acting as an agent for the insurance company, Keddie, supra, 1999 BCCA 541, at 13-23, 23 (distinguishing between agency and being a broker); Thiessen, supra, 2002 BCCA 501, at 2 (issue is “who is to bear the risk of a defalcating life insurance representative”).

The two other cases they cited are from the Supreme Court of Canada, Bazley v. Curry, 2 R.C.S. 534 (1999); 671122 Ontario Ltd. v. Sagaz Indus. Canada Inc., 2 R.C.S. 983 (2001). Bazley held that an employer is vicariously liable for the actions of its employee, there the sexual assault by the employee, 2 R.S.C. at 563, 543-63. Citing Bazley, the Canadian Supreme Court in 671122 Ontario Ltd. denied defendant’s vicarious liability for the acts of its independent consultant, 2 R.S.C. at 988, 995-96. These cases support extending liability for Rappazzo’s actions to CCR-Canada in the employment context, but they fail to further extend that liability to Defendants as the corporate parent of CCR-Canada.

Plaintiffs do not cite Canadian or Ontario cases involving subsidiaries and the parent corporation’s liability for their actions as agents for the parent. Plaintiffs have not addressed the liability of a subsidiary to the parent. They merely allege the CCR-Canada is the wholly owned subsidiary of Coke (Docket No. 1, Ex. B, Compl. ¶ 27).

Defendants cite to Gregorie v. Intrans-Corp., supra, 18 O.R.3d 527 (Ont. Ct. App.
1994), that a subsidiary will not be found to be the alter ego of the parent corporation “unless the subsidiary is under the complete control of the parent and is nothing more than a conduit used by the parent to avoid liability,” id. ¶ 28 (Docket No. 21, Defs. Reply Memo. at 8).

*9 The parties have not concluded that Ontario and New York agency laws are substantially similar. But comparing the cited provisions of these jurisdictions’ law on agency, both are similar. Ontario and New York agency laws both rest upon the degree of control by the parent corporation over the subsidiary to conclude that the subsidiary also acts as an agent for the parent.

Ontario agency law provides that a subsidiary will not be found to be the alter ego of the parent corporation “unless the subsidiary is under the complete control of the parent and is nothing more than a conduit used by the parent to avoid liability,” Gregorie v. Intrans-Corp., supra, 18 O.R.3d 527, ¶ 28 (id.); see Aluminum Co. of Canada Ltd. v. Toronto (City), [1944] S.C.F. 267, 271 (¶ 16) (S.C.C. 1944); Kentucky Fried Chicken Canada v. Scott’s Food Servs., Inc., 35 B.L.R. (2d) 21, at ¶¶ 59-62 (Ont. Gen. Div. 1997) (subsidiary held not alter ego or agent of parent corporation even though parent controlled long-term decisions and budget of subsidiary, subsidiary ran substantial day-to-day operations), rev’d on different grounds, 118 O.A.C. 357 (Ont. Ct. App. 1998).

New York agency law requires an allegation that the parent corporation “so controlled the operations of the subsidiary company that it should be held liable for the negligence of the delivery truck driver,” Montes Serrano, supra, 19 A.D.3d at 578, 797 N.Y.S.2d at 136 (Docket No. 19, Pls. Memo. at 8).

At the threshold and under New York choice of law principles, there is no conflict. Both New York and Ontario determine that a subsidiary’s agency exists from the control by the parent corporation over the subsidiary. On choice of law principles, absent a conflict between these two jurisdictions’ agency laws, New York law applies.

2. Agency Law
Thus, under New York agency law, the corporate subsidiary can be shown to be the agent of the parent either by the subsidiary doing all the business that the parent could do or the subsidiary was a “mere department” of the parent (Docket No. 19, Pls. Memo. at 8). Four factors to establish a subsidiary is a “mere department” is common ownership with the parent; financial dependency of the subsidiary to the parent; degree of parent’s involvement in the selection and assignment of subsidiary executive personnel and failure to observe corporate formalities; and the degree of the parent’s control of the subsidiary’s marketing and operational policies. Darden v. DaimlerChrysler N. Am. Holding Corp., 191 F. Supp. 2d 382, 387, 388 (S.D.N.Y. 2002) (id.); see also Kentucky Fried Chicken Canada, supra, 35 B.L.R. (2d) 21, at ¶ 59 (Ontario agency law has six factors who owns profits, who provides day-to-day operation of subsidiary, who was the “brains behind” the day-to-day operation, who made policy and financial decisions, whether profits were directly traceable to the skill and direction of the parent, and whether control by parent was constant or merely periodic, citing Smith, Stone & Knight Ltd. v. Birmingham (City), 4 All E.R. 116 (Eng. K.B. 1939)).

Agency also is manifested if the parent corporation gives actual authority to the subsidiary to act on its behalf, Fletcher v. Atex, Inc., 68 F.3d 1451, 1461-62 (2d Cir. 1995) (see Docket No. 21, Defs. Reply Memo. at 4), or apparent authority where one can see acts of the parent corporation which reasonably give an appearance of authority for the subsidiary to conduct the transaction, id. at 1462 (quoting Greene v. Hellman, 51 N.Y.2d 197, 204, 433 N.Y.S.2d 75, 80 (1980)).

*10 Plaintiffs argues that they allege sufficiently that CCR-Canada is the agent of Defendants (id. at 9). Defendants deny that Plaintiffs alleged facts that CCR-Canada is a mere department of Defendants or that CCR-Canada had no independent functioning (Docket No. 21, Defs. Reply Memo. at 8).

Plaintiffs, however, have not alleged CCR-Canada had the actual authority from Defendants to act as their agents. The Complaint also does not allege the appearance of Defendants’ authorizing CCR-Canada to act on their behalf to allege apparent authority.

Plaintiffs allege that Coke is the world’s largest beverage company that operates “a worldwide system with subsidiaries across the globe, many of which are wholly-owned subsidiaries” (Docket No. 1, Ex. B, Compl. ¶¶ 8, 10), marketing and distributing products throughout New York and Ontario (among other places) through its global distribution system (id. ¶ 12). In 2010, Coke acquired Coca Cola Enterprises, the bottler, and thus directly owned 100% of Coca-Cola Refreshments (later renamed CCR) (id. ¶¶ 16, 17, 18, 19). CCR-Canada allegedly is the wholly owned subsidiary of CCR (id. ¶ 27) and in turn Coke (id. ¶ 28).

Plaintiffs allege that CCR “operated in Canada through the CCR-CANADA unit” (id. ¶ 29). In establishing jurisdiction in New York State, Plaintiffs claim that Coke, as the parent, “exercises control over its subsidiaries, CCR and CCR CANADA, which is so pervasive, controlling and continuous as part of the Defendant [Coke’s] organizational structure and system that the said subsidiaries’ corporate independence from the parent company is essentially non-existent” (id. ¶ 56). They claim common ownership, interlocking directorates, and executive management of CCR and CCR-Canada with Coke (id. ¶ 64). They conclude that CCR-Canada was under the direction and complete control of Defendants (id. ¶ 69).

Although they make the above allegations of this complete control by Defendants of CCR-Canada, Plaintiffs fail to allege one factor to establish agency, that Coke and CCR select CCR-Canada’s management.

Thus, Defendants’ Motion for Judgment (Docket No. 16) pursuant to Rule 12(c) to dismiss the agency claims in the Complaint (and the entire Complaint) is granted.

E. Leave to Amend
Plaintiffs alternatively ask for leave to replead their Complaint (Docket No. 19, Pls. Memo. at 18). If needed, they offer to amend to specify principal-agency or piercing the corporate veil (id.). Again, Defendants took no position on this alternative; Defendants have only voiced their objection to them remaining as parties in this case.

Before this Court are the questions can Plaintiffs amend to allege agency claims and whether an unspecified amendment to “adequately set for the plaintiff’s claims against the defendants” (id.) would be futile, which Plaintiffs deny (id.). Plaintiffs have not provided a proposed Amended Complaint or state the basis for amendment but offers to amend to specify piercing the corporate veil or principal-agency relationship. They have not stated whether their clarifying amendment would add CCR-Canada as a Defendant.

Absent an amendment stating that CCR-Canada’s incorporation was fraudulent or created to conduct wrongdoing (especially leading to the truck accident at issue here), a further amendment alleging piercing the corporate veil here would be futile.

*11 As for an amended pleading specifying the agency relationship, the original Complaint elaborates on the corporate organization and relationships between Defendants and CCR-Canada but fails to allege Defendants’ role in the management and operation of CCR-Canada.

Again, “the question ‘is not whether plaintiffs have proved the existence of an agency relationship, merely whether they should have the chance to do so,’ ” In re South African Apartheid Litig., supra, 617 F. Supp.2d at 273. It would not be futile for Plaintiffs to amend their Complaint to try to state an agency relationship between Defendants and CCR-Canada. If the facts warrant, Plaintiffs could allege the day-to-day operations of CCR-Canada and show whether Defendants so control CCR-Canada to render it an agent for these principal corporations. Leave to amend to specify the agency relationship between Defendants and CCR-Canada (see Docket No. 19, Pls. Memo. at 18) is granted.

Plaintiffs have fourteen (14) days from entry of this Order to file and serve their Motion for Leave to Amend the Complaint with the proposed Amended Complaint and a redline/strikeout version comparing the original pleading with the proposal, see W.D.N.Y. Loc. Civ. R. 15(b).

IV. Conclusion
Plaintiffs here cannot reach non-party CCR-Canada by suing the named Defendants here. Defendants’ Motion for Judgment (pursuant to Rule 12(c) (Docket No. 16)) to Dismiss this case is granted.

Plaintiffs’ alternative seeking leave to amend (Docket No. 19, Pls. Memo. at 18) to further specify piercing the corporate veil of CCR-Canada would be futile and is denied. Leave to amend (id.) to specify the agency relationship between Defendants and CCR-Canada (Docket No. 19, Pls. Memo. at 18), however, is granted; Plaintiffs have fourteen (14) days from filing this Order to file motion for leave to amend with proposed Amended Complaint.

V. Orders
IT IS HEREBY ORDERED, that Defendants’ Motion to Dismiss (Docket No. 16) is GRANTED.

IT IS FURTHER ORDERED, that leave to amend this Complaint (see Docket No. 19, Pls. Memo. at 18) is GRANTED.

SO ORDERED.

Dated: March 23, 2021

Buffalo, New York
s/William M. Skretny

WILLIAM M. SKRETNY

United States District Judge
All Citations
Slip Copy, 2021 WL 1110397

Footnotes

1
In support of motion, Defendants submit their attorney’s Affirmation, exhibit (state court Summons and Complaint), and Memorandum of Law, Docket No. 16; and in reply, they submitted their Reply Memorandum, Docket No. 21. In opposition, Plaintiffs submit their Memorandum of Law with exhibits, Docket No. 19.
Defendants then moved to stay discovery, Docket No. 25, which Magistrate Judge Foschio granted, Docket No. 28.